By Sinead Carew
NEW YORK (Reuters) - World stock markets plunged on Monday after a near-9 percent dive in China shares and a tumble in oil prices, while U.S. stocks were on track to end the day with steep losses even after a striking comeback in a volatile day.
After dropping more than 1,000 points, or almost 7 percent, at Wall Street's open, the Dow Jones industrial average <.DJI> cut losses but was still off almost 4 percent in afternoon trading. The Standard & Poor's 500 index <.SPX> was down 4 percent and appeared to be on track for correction territory, or a 10-percent drop from its May record high.
A key measure of U.S. equity volatility, the CBOE Volatility Index, or VIX <.VIX>, shot above the 50 mark for the first time since 2009 before dropping back to 36 as U.S. investors turned their focus back to domestic issues.
European stocks <.FTEU3> closed off 5.4 percent after Asian shares slumped to 3-year lows when a three-month-long rout in Chinese equities threatened to get out of hand. [.SS]
U.S. markets had some reprieve after Europe closed but then pushed back down towards earlier lows in late afternoon.
"There was clearly some forced selling, whether it was forced selling or just stop=losses for large, aggressive hedge funds," said Rick Meckler, president of LibertyView Capital Management in Jersey City, New Jersey.
"It got very sloppy, and you then saw buyers start to emerge. But a lot of those buyers were short-term in nature and took some of their gains around lunchtime. Now we're seeing a second wave of selling."
the Dow Jones industrial average was down 654.14 points, or 3.97 percent, at 15,805.61. The S&P 500 <.SPX> lost 4.06 percent to 1,890.9 and the Nasdaq Composite <.IXIC> dropped 3.78 percent to 4,528.23.
U.S. traders had rushed for the exits in Monday's first half hour of trading when deepening concerns about a China-led global economic slowdown and tumbling commodities prices followed a 5 percent decline in the S&P and Dow Thursday and Friday.
"Anybody with a pulse was nervous when the market opened. We're still going to see significant price swings both up and down before the day ends today," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
By 3 P.M. EDT (1900 GMT) trading volume was near 10 billion shares, which was still shy of Friday's hefty 10.6 billion shares but well above the 7 billion daily average for the month to date, according to BATS Global Markets.
Coming up to the U.S. close, the day's swings had strategists seeking a read on the rest of the week.
"If you see it close in the upper half of the day's range, that is a good sign in terms of the next few days," said Katie Stockton, chief technical strategist at BTIG in New York.
Oil prices settled down sharply after plunging to six-and-a-half year lows. Safe-haven U.S. government [US/] and German bonds [EUR/GVD], as well as the yen > and the euro >, rallied as currency concerns kicked in due to China's recent currency devaluation.
U.S. crude settled down 5.5 percent at $38.24 a barrel
The S&P's energy index <.SPNY> was the weakest performer with a 5.2 percent decline in late afternoon trading.
Copper
GREAT FALL OF CHINA
The slump in Chinese stocks <.CSI300><.SSEC> was their worst performance since the depths of the global financial crisis in 2007 and wiped out what was left of 2015's gains, which in June stood at more than 50 percent.
Many traders had hoped Beijing would take support measures, such as an interest rate cut, over the weekend after China's main stocks markets slumped 11 percent last week.
With serious doubts emerging about the likelihood of a U.S. interest rate rise this year, the dollar <.DXY> was down 1.6 percent against other major currencies after falling as much as 2.5 percent earlier in the day.
The Australian dollar > fell to more than six-year lows and many emerging market currencies also plunged [EMRG/FRX], while the frantic dash to safety pushed the euro > to a seven-and-a-half month high of more than $1.17. [FRX/]
MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> fell 5.4 percent to a more than three-year low. Tokyo's Nikkei <.N225> ended down 4.6 percent and Australian <.AXJO> and Indonesian shares <.JKSE> hit two-year troughs.
London's FTSE 100 <.FTSE>, with its large number of global miners and oil firms, ended down 4.7 percent for its 10th straight decline - its worst run since 2003.
The MSCI all world stock index <.MIWD00000PUS> was off 3.7 percent.
(Additional reporting by Chuck Mikolajczak and Caroline Valetkevitch in New York; Editing by Nick Zieminski and Dan Grebler)
